I know I know.. WE don't time the market.. But for the 100% equity folks out there, are you currently holding a portion of your portfolio in cash/bond/short term fixed income options, in order to "buy low" whenever there is a market correction?

I previously decided that I'm comfortable as a 100% equity long-term investor (age 31), but given the record high valuations, I'm currently somewhat timing the market as a 90% equity, 10% "powder on the ready" to buy low. I've drifted to this AA through mostly new contributions over the past few months.. into a 10% bonds/cash/preferred stock situation. I will buy equity low if there is a significant drop.. for me, 2% market drop will prompt a 2% of "powder" re-investment into my equity holdings and 15-20% drop will prompt reinvestment all the way back to 100% equity. How long I then remain at 100% equity I haven't fully thought out.

Could be a waste of effort? Of course the market could continue to drop 40-50% at some point so then my efforts wouldn't really matter... especially in a 20-30 year sense. But still it's sort of enjoyable for me.

I know I know.. WE don't time the market.. But for the 100% equity folks out there, are you currently holding a portion of your portfolio in cash/bond/short term fixed income options, in order to "buy low" whenever there is a market correction?

I previously decided that I'm comfortable as a 100% equity long-term investor (age 31), but given the record high valuations, I'm currently somewhat timing the market as a 90% equity, 10% "powder on the ready" to buy low. I've drifted to this AA through mostly new contributions over the past few months.. into a 10% bonds/cash/preferred stock situation. I will buy equity low if there is a significant drop.. for me, 2% market drop will prompt a 2% of "powder" re-investment into my equity holdings and 15-20% drop will prompt reinvestment all the way back to 100% equity. How long I then remain at 100% equity I haven't fully thought out.

Could be a waste of effort? Of course the market could continue to drop 40-50% at some point so then my efforts wouldn't really matter... especially in a 20-30 year sense. But still it's sort of enjoyable for me.

Anyone doing something similar?

If you're 31 and you are hypothetically stating what you think you will do when the market corrects 20%, you might be surprised. You will see every media outlet talking about how armageddon is right around the corner when we hit a 10% correction.

If you're 31 and you are hypothetically stating what you think you will do when the market corrects 20%, you might be surprised. You will see every media outlet talking about how armageddon is right around the corner when we hit a 10% correction.
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Well, no, I doubt that. I know I'm investing for the long term i.e. 30 years. Simply trying to "increase my return" by having something available in retirement accounts to use to buy low at a time of high market valuations. (I know, which WE don't do). I have no intention ever of selling low or being scared to buy back in... I would view "armageddon" as an excellent buy low opportunity.

I hold 10% in intermediate treasuries as part of my AA. Therefore there is no behavioral issue such as you are experiencing. I still expect to lose just as much as a 100% equity investor in the next crash due to my tilts to riskier market segments.

"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

I know I know.. WE don't time the market.. But for the 100% equity folks out there, are you currently holding a portion of your portfolio in cash/bond/short term fixed income options, in order to "buy low" whenever there is a market correction?

I previously decided that I'm comfortable as a 100% equity long-term investor (age 31), but given the record high valuations, I'm currently somewhat timing the market as a 90% equity, 10% "powder on the ready" to buy low. I've drifted to this AA through mostly new contributions over the past few months.. into a 10% bonds/cash/preferred stock situation. I will buy equity low if there is a significant drop.. for me, 2% market drop will prompt a 2% of "powder" re-investment into my equity holdings and 15-20% drop will prompt reinvestment all the way back to 100% equity. How long I then remain at 100% equity I haven't fully thought out.

Could be a waste of effort? Of course the market could continue to drop 40-50% at some point so then my efforts wouldn't really matter... especially in a 20-30 year sense. But still it's sort of enjoyable for me.

Anyone doing something similar?

I understand your reasoning. But let's think about it this way: when the market drops, as you continue to make contribution from your paycheck, you will get to buy stocks for cheap. When you stay at 10% less than your ideal AA, you set yourself to miss out the gain if the market continues to go up. Because it's anybody's guess which direction the market will go, it's not worth it to do this type of market timing when you stay at your ideal AA.

Perhaps your AA is 90/10 so that you might be more comfortable to rebalance the gain to bond/cash?

... and 15-20% drop will prompt reinvestment all the way back to 100% equity.

Doesn't make sense. Imagine two difference scenarios. In the first, earnings start to falter a bit, with some companies missing expectations and revising future estimates downward, all the while there is another drop in energy prices that spooks the market. The market declines 20%, short-term bond yields hold steady, but longer term rates fall, and the yield curve flattens dramatically. In the second, there is a major terrorist attack in a US city, and a state actor is behind it. The government's response prompts a constitutional crisis, all the while a major war is on the horizon. The market declines 20%, short-term rates fall back to zero, but long-term rates surge on inflation worries. (The exact details of the scenarios don't matter--make up whatever you wish, including alternative scenarios.) Two very different situations, all playing out before you make any investment changes, but you've decided that you will ignore whatever additional information you have in the future and that in your investment world, the two scenarios are equal.

I bet the market goes up more than 2% before there is a drop of 2%. This is a flawed strategy. Even if we revert to a mean P/E, today might be the lowest the market gets forever looking forward.

This.

I've dabbled with keeping "dry power" when the market is high, and I think it's a mistake. It is a form of market timing and it fails for the same reasons why people are bad at trying to time the market and actively manage their portfolios. The danger is that you take 10% out now with the hopes of using as "dry powder" on the next dip and then... the market goes up another 20%. Finally it dips, down by 17%. Assume you buy in at this point--you're worse off then if you'd just kept it all invested to begin with.

Or, assume you choose not to buy in, and the market goes back up 10%, and you realized you missed the dip--and there you are sitting with your unused "dry powder".

I bet the market goes up more than 2% before there is a drop of 2%. This is a flawed strategy. Even if we revert to a mean P/E, today might be the lowest the market gets forever looking forward.

This.

I've dabbled with keeping "dry power" when the market is high, and I think it's a mistake. It is a form of market timing and it fails for the same reasons why people are bad at trying to time the market and actively manage their portfolios. The danger is that you take 10% out now with the hopes of using as "dry powder" on the next dip and then... the market goes up another 20%. Finally it dips, down by 17%. Assume you buy in at this point--you're worse off then if you'd just kept it all invested to begin with.

Or, assume you choose not to buy in, and the market goes back up 10%, and you realized you missed the dip--and there you are sitting with your unused "dry powder".

The market is not a zero-sum game. Over time, the market goes up That's why we invest in it. I expect that what we lose sitting out the market waiting for a dip, is on average more than we an expect to gain...

I am comfortable at 100/0, although one of my holdings does have some bonds so I am actually about 99/1 on invested money. I recently retired and rolled over my 401k to an IRA, but have not finished investing all of that money yet. I was holding off in part to try to convince myself to put some into bonds, considering I have very little income coming in currently and do not have the security of a paycheck. Couldn't do it though. I am just not a bonds guy. I did dump another $60,000 into VTI today, so have a little over $100,000 left in cash. I will do another partial Roth conversion in January with an eye toward $50,000 for 2018. Another $60k to invest at some point and I'll be back to around 99/1. I am comfortable with that because, while I do not have a million-dollar portfolio, my expenses are low and I can withstand a significant drop if/when it comes.

If you're 31 and you are hypothetically stating what you think you will do when the market corrects 20%, you might be surprised. You will see every media outlet talking about how armageddon is right around the corner when we hit a 10% correction.

32 here and was working and invested during 2007. You are right that it did not feel like some sweet buying opportunity. It felt like the economy as we knew it was changing. Those of us who kept our jobs were just trying to hang on. We had no idea stocks (or home prices) would recover. Many people my age worried we'd never be prosperous or successful. Many people a generation older thought they'd never retire. And many two generations older delayed their retirement or, unfortunately, got laid off and tried to get by on less savings than they'd planned.

I try to rewatch documentaries like Inside the Meltdown every few years since then to remind myself what it felt like because recovery did not feel inevitable. Just wanted to say though that some of us young'ins were around and do remember what it was like.

I am comfortable at 100/0, although one of my holdings does have some bonds so I am actually about 99/1 on invested money. I recently retired and rolled over my 401k to an IRA, but have not finished investing all of that money yet. I was holding off in part to try to convince myself to put some into bonds, considering I have very little income coming in currently and do not have the security of a paycheck. Couldn't do it though. I am just not a bonds guy. I did dump another $60,000 into VTI today, so have a little over $100,000 left in cash. I will do another partial Roth conversion in January with an eye toward $50,000 for 2018. Another $60k to invest at some point and I'll be back to around 99/1. I am comfortable with that because, while I do not have a million-dollar portfolio, my expenses are low and I can withstand a significant drop if/when it comes.

That is ill-advised in my opinion. There's a book called The Four Pillars of Investing by William Bernstein, which went back and explored the nature of different asset class, i.e stock, bond, etc. There is a long period that bond outperformed stock. Bond has its value:
1) allow you to rebalance gain from winning stock funds into bond funds,
2) allow you to sell bonds when the market tanks and not sell low the losing stocks,
3) allow you to sell bonds when the market tanks to buy stocks at a bargain,
4) help many sleep well through the night, etc.

These threads are reaching the yawn phase. But since OP has engaged and does not seem to be a one-off troll - I will bite.

1) Have you read William Bernstein? If you have not read "If You Can" - start there.
2) Start working your way through his list of recommended books.
3) And then look at Value Averaging. I'm not a fan of static allocations - they just don't make sense to me. Value Averaging at least gives a clue when might be a good idea to sell or buy. Consider letting your fixed income allocation float.
4) If you have not read AlohaJoe's medium posts on McClungs PrimeHarvesting. Read them. I will not recommend the full McClung book as I think it is unnecessary at your stage. But his take on Prime Harvesting is provoking. Pick a number between 10% and 20% - if your accounts are above. Sell some and start to build your Fixed Income that way. McClung takes it a step further - because there is no dry powder. You never put that money back in the market.
5. Loop back and read ALL the books on behavioral economics.

I am comfortable at 100/0, although one of my holdings does have some bonds so I am actually about 99/1 on invested money. I recently retired and rolled over my 401k to an IRA, but have not finished investing all of that money yet. I was holding off in part to try to convince myself to put some into bonds, considering I have very little income coming in currently and do not have the security of a paycheck. Couldn't do it though. I am just not a bonds guy. I did dump another $60,000 into VTI today, so have a little over $100,000 left in cash. I will do another partial Roth conversion in January with an eye toward $50,000 for 2018. Another $60k to invest at some point and I'll be back to around 99/1. I am comfortable with that because, while I do not have a million-dollar portfolio, my expenses are low and I can withstand a significant drop if/when it comes.

That is ill-advised in my opinion. There's a book called The Four Pillars of Investing by William Bernstein, which went back and explored the nature of different asset class, i.e stock, bond, etc. There is a long period that bond outperformed stock. Bond has its value:
1) allow you to rebalance gain from winning stock funds into bond funds,
2) allow you to sell bonds when the market tanks and not sell low the losing stocks,
3) allow you to sell bonds when the market tanks to buy stocks at a bargain,
4) help many sleep well through the night, etc.

I sleep just fine, or at least it is never disrupted by money thoughts. And that is why they call this board PERSONAL investments.

I believe 100% equity to be the most ideal course of action for the long term, accumulation phase investor. However, after reading "A Random Walk Down Wall Street" and "Your Money and Your Brain," I've moved to a 90(stocks)/5(bonds)/5(precious metals) allocation. This basically amounts to me realizing I can be wrong in my assessment of future returns. By merely sticking my toe in the water, I mitigate a bunch of potential pitfalls associated with chasing returns in the future.

At 90/5/5, I am totally comfortable being wrong and I believe I am close enough to being right.

Last edited by mbasherp on Wed Dec 20, 2017 8:43 am, edited 1 time in total.

If you're 31 and you are hypothetically stating what you think you will do when the market corrects 20%, you might be surprised. You will see every media outlet talking about how armageddon is right around the corner when we hit a 10% correction.

32 here and was working and invested during 2007. You are right that it did not feel like some sweet buying opportunity. It felt like the economy as we knew it was changing. Those of us who kept our jobs were just trying to hang on. We had no idea stocks (or home prices) would recover. Many people my age worried we'd never be prosperous or successful. Many people a generation older thought they'd never retire. And many two generations older delayed their retirement or, unfortunately, got laid off and tried to get by on less savings than they'd planned.

I try to rewatch documentaries like Inside the Meltdown every few years since then to remind myself what it felt like because recovery did not feel inevitable. Just wanted to say though that some of us young'ins were around and do remember what it was like.

I’m 100% equity and have been for the last 12+ years. In 2009, I sold/downgraded a car so I could plow another $15k into the market. I share this only as a alternative view. Some people really can hang on (even joyfully) when the market crashes. That said, MOST people cannot and I think the advice given to the OP is sound. If market highs have you re-thinking you’re strategy you shouldn’t be100% equity

32 here and was working and invested during 2007. You are right that it did not feel like some sweet buying opportunity. It felt like the economy as we knew it was changing. Those of us who kept our jobs were just trying to hang on. We had no idea stocks (or home prices) would recover. Many people my age worried we'd never be prosperous or successful. Many people a generation older thought they'd never retire. And many two generations older delayed their retirement or, unfortunately, got laid off and tried to get by on less savings than they'd planned.

I try to rewatch documentaries like Inside the Meltdown every few years since then to remind myself what it felt like because recovery did not feel inevitable. Just wanted to say though that some of us young'ins were around and do remember what it was like.

32 now in 2007 is 22. Equities getting halved in one's 20s (and probably 30s) might not even be noticed if one remains employed. The common commentary on equities getting halved with time to recover is great advice in a vacuum. However, equities getting halved rarely brings up the inevitable national loss of employment in many industries. There is nothing quite like being mid level in one's career with spouse and children and watching your equities getting halved and getting the pink slip. I tend to think the market getting halved the day after you retire would also be an issue with sequence of returns. But probably with just your spouse and no debt, you could hunker down for 12-24 months on expenses if you were forced, for some of us that grew up with 10% of the living standard we have today, cutting back a little would be no problem.

Is the actual question who admits to not being "folks" anymore, meaning the "100% equity" kind. I call wimp on all of you.

More seriously, I think people should examine carefully whether or not they believe in some kind of market timing or if they believe that selecting an asset allocation is supposed to include a commitment to maintain the plan.

But, 90/10 returns, or even 80/20 for that matter, are not that different than 100/0. If it makes you feel good to make a change and it's relatively small in magnitude then it is OK in principal.

The danger is it getting out of control and you start thinking you can time the market and making bigger movements.

I would write down some criteria for making such changes and the maximum amount (%) you are willing to shift. Then, stick to it.

What you've said might wind up making you a little money, or it might wind up costing you a little, but it isn't going to move the needle. Having success, thinking you can do it, risking more, and failing, could have a significant impact.

32 here and was working and invested during 2007. You are right that it did not feel like some sweet buying opportunity. It felt like the economy as we knew it was changing. Those of us who kept our jobs were just trying to hang on. We had no idea stocks (or home prices) would recover. Many people my age worried we'd never be prosperous or successful. Many people a generation older thought they'd never retire. And many two generations older delayed their retirement or, unfortunately, got laid off and tried to get by on less savings than they'd planned.

I try to rewatch documentaries like Inside the Meltdown every few years since then to remind myself what it felt like because recovery did not feel inevitable. Just wanted to say though that some of us young'ins were around and do remember what it was like.

32 now in 2007 is 22. Equities getting halved in one's 20s (and probably 30s) might not even be noticed if one remains employed. The common commentary on equities getting halved with time to recover is great advice in a vacuum. However, equities getting halved rarely brings up the inevitable national loss of employment in many industries. There is nothing quite like being mid level in one's career with spouse and children and watching your equities getting halved and getting the pink slip. I tend to think the market getting halved the day after you retire would also be an issue with sequence of returns. But probably with just your spouse and no debt, you could hunker down for 12-24 months on expenses if you were forced, for some of us that grew up with 10% of the living standard we have today, cutting back a little would be no problem.

I agree with you. I remember how bad it was. I did not say it wasn’t worse for older people. Just this idea that in my 20’s then and in my 30’s now means I’m incapable of experiencing true economic distress has me a bit rankled.

I am currently 90/10 but was 100/0 in 2007. But by your reckoning I might as well be 100/0 now since I guess I’m still not a real adult or something. Also nice humble brag on doing 10x better as an adult than you how you grew up. Growing up less fortunate must not have been that bad though since you weren’t in your 40s and supporting a family yet.

I agree with you. I remember how bad it was. I did not say it wasn’t worse for older people. Just this idea that in my 20’s then and in my 30’s now means I’m incapable of experiencing true economic distress has me a bit rankled.

I am currently 90/10 but was 100/0 in 2007. But by your reckoning I might as well be 100/0 now since I guess I’m still not a real adult or something. Also nice humble brag on doing 10x better as an adult than you how you grew up. Growing up less fortunate must not have been that bad though since you weren’t in your 40s and supporting a family yet.

Most of what I posed was hypothetical. I am neither in my 40s, nor was the standard of living scenario I mentioned from my own situation. The latter was more practical than I see people willing to acknowledge with the SWR. If equities start a 24 month 50% decline the day after one retires, then you simply cut expenses, which I don't see many authors point out, it's more oh well, guess I'll let sequence of returns eat my lunch and keep on with the 4% SWR.

I am also 100% equities (of my non real estate investments) and emergency cash I keep for SWAN. The crux of what I was saying is that the 50% bear market where you have 15 times more in your 401k at an older age is a completely different mindset than at an early age. Everything looks good on paper, and paying attention in 2007 right out of school is certainly a good thing, but until you're in the situation of watching $200k/$400k/$1M (again a BH sentiment, not my own situation) decline in your portfolio because equities have been halved, it's difficult to know 100% how you will react.

Maybe so, but this is backward-looking. OP is not talking about the past; OP is talking about the future. (There is an inability to predict the future, yes, but the fact that your allocation is "so far so good" does not mean that it'll continue to be so.)

Maybe so, but this is backward-looking. OP is not talking about the past; OP is talking about the future. (There is an inability to predict the future, yes, but the fact that your allocation is "so far so good" does not mean that it'll continue to be so.)

cheers!
jwf

I do not know what the future is going to bring. I am happy with the returns the last 20 years and I feel good about the future.

So far so good means to me : No regrets. It is good to enjoy a good run when you have one and I look forward to the next 20, 30 and hopefully 40 years.

I have in my Investment Policy Statement to buy bonds if the 20 year bonds yields reach 5 %. I do not expect to see that in my life time and I hope to live a long and prosperous life. I will be happy to buy bonds at a 5 % yield.

The Golden Rule: One should treat others as one would like others to treat oneself.

First: I am a firm believer in the Bogleheads buy and hold philosophy. I do not believe some of the rules of thumb and conventional wisdom. I am also 100% in mutual funds with 75% in index funds.

An AA of 100% equity at the age of 31 is reasonable. I was 100% stocks when I started at the age of 36. I considered my bi-monthly pay check deductions my "dry powder". My plan was to start moving funds into bonds gradually over my last few working years. (dollar cost averaging)

My target was 3 or 4 years living expenses in bond funds, which works out to about 15%, with the remainder in all of the 9 style boxes plus a couple of sector funds. Unfortunately I was prematurely "retired" during the oil price crunch in 2015, so I'm still gradually adjusting my AA as favorable price differentials allow. My strategy is to take distributions from which ever fund has the best returns over the last 12 months and re-balance whenever there is a favorable price differential.

I know I know.. WE don't time the market.. But for the 100% equity folks out there, are you currently holding a portion of your portfolio in cash/bond/short term fixed income options, in order to "buy low" whenever there is a market correction?

I previously decided that I'm comfortable as a 100% equity long-term investor (age 31), but given the record high valuations, I'm currently somewhat timing the market as a 90% equity, 10% "powder on the ready" to buy low. I've drifted to this AA through mostly new contributions over the past few months.. into a 10% bonds/cash/preferred stock situation. I will buy equity low if there is a significant drop.. for me, 2% market drop will prompt a 2% of "powder" re-investment into my equity holdings and 15-20% drop will prompt reinvestment all the way back to 100% equity. How long I then remain at 100% equity I haven't fully thought out.

Could be a waste of effort? Of course the market could continue to drop 40-50% at some point so then my efforts wouldn't really matter... especially in a 20-30 year sense. But still it's sort of enjoyable for me.

Anyone doing something similar?

Hey Sir James, I was doing the same thing because it feels good and such, especially in a volatile market. However, I was advised by Livesoft again that its not about when you put it in, its about putting it in as early as you get it (and can afford it), regardless of market conditions. There is a story online about a guy who never took anything out, yet put money in right at the "wrong" time each time he got enough balls to drop some in: He ended up fine because he didnt take anything out until retirement. In other words, unless you're saving up for some minimum of a fund or a really expensive set of Etf's, BH's generally don't think this is a good idea. However, my thought may be that if all your doing is buying...then what's the problem with it? Buy early and often, thats the mantra around here that I have seen. Thoughts?

...If you're 31 and you are hypothetically stating what you think you will do when the market corrects 20%, you might be surprised. You will see every media outlet talking about how armageddon is right around the corner when we hit a 10% correction.
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I'm a balanced fund guy, but I don't think it's unreasonable to be 100% stocks at your age if you know the risks. 90/10 won't be much different.

My daughter just started her first real job and at first I told her to buy the Target Date Fund that they offered from Vanguard, but after listening to Jim Collins I told her to put it all in the S&P 500 Index Vanguard (Vanguard). She is 23. I told her to check back with me regarding this when she turns 30 and encourage her to read a couple of books I lent her.

For the record, I don't think international is necessary, so I think this is the best way for a young person to go.

I didn't start investing until age 31, but even back then I always liked the two fund stock/bond approach or balanced fund with a 60/40 AA. It worked out pretty good 23 years later.

P.S. the best thing that can happen for the young investor is a few nice corrections during your investing lifetime. And the good news is you can pretty much count on them.

If you're 31 and you are hypothetically stating what you think you will do when the market corrects 20%, you might be surprised. You will see every media outlet talking about how armageddon is right around the corner when we hit a 10% correction.
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Well, no, I doubt that. I know I'm investing for the long term i.e. 30 years.
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Sirjames,

<<Well, no, I doubt that. I know I'm investing for the long term i.e. 30 years.>>

1) How do you know that is true unless you can predict the future?

2) If you cannot predict your future, then, you are not investing for the long-term. In fact, you have no idea how long that you will be investing.

Hoping for another Great Recession/Depression opportunity to deploy the cash holdings. In the meantime, I invest portions of the $1.5M cash into my own business to continue growing my take home income. Also nibbling with 10% corrections as long as fundamentals remain intact - I did this in January.

Thank you all for the responses! Well, 6 mos older (age 31.5 if you will), and after more reading about "DIY" index ETF investing, I am no longer following the strategy that I listed in my original post. I anticipate holding strong at 100% equity for at least 10-15 more years. But I now feel that "holding dry powder" on the sidelines is unnecessary if I am going to be making new contributions on a monthly basis, which I am.